Mexico is rapidly becoming one of the most popular countries in purchasing a vacation home or investment property for Americans and Canadians. While Baja California Real Estate is a great investment to add to your portfolio, some feel uneasy about the process of buying in a foreign country.
Q: Can citizens of countries other than Mexico buy and own real estate in Mexico?
A: Yes, citizens of countries outside Mexico can purchase property in Mexico by creating a bank trust, also known as Fideicomiso.
Q: Can foreigners own real estate near Mexico’s borders or near the ocean?
A: The Mexican Constitution previously banned foreign nationals from owning property that was within what has been defined as the “Restricted Zones.” The Restricted Zones encompass all land located within approximately 62 miles of any Mexican border and within about 31 miles of any Mexican coastline. This old law intended to protect Mexican land from foreign invasion.
Because the constitution could not be altered, the Mexican government introduced a system called the “Fideicomiso,” (FEE-DAY-E-CO-ME-SO) which is translated as “Real Estate Trust”, so that foreign nationals could invest in property inside the Restricted Zones.
The trust holds the Deed to the property, and the Buyer and/or other named persons which the Buyer specifies, are the sole beneficiaries to the trust (and therefore the property). The beneficiary has full rights to do whatever he/she likes with the property. It can be developed (in accordance with local planning regulations), or rented, leased, sold, or given away. In other words, the Buyer has full ownership rights.
Unlike some countries, Buyers do not have to be residents in Mexico to own Real
Estate so there is no need to qualify for resident status under immigration law. The trust enables the Buyer to name a beneficiary and all rights will be transferred upon his or her passing.
Mexican Law in property ownership is comprehensive and provides many safeguards to protect the Buyer and Seller in all property transactions, provided that the process is followed by law with the proper officials, and all necessary documentation is created.
Q: How does the trust work?
A: The Fideicomiso Trust is created with a Notary public and a Mexican National Bank acts as trustee. The trust is formalized with a permit from Mexico’s Ministry of Foreign Affairs. The Buyer is named as the primary beneficiary. The beneficiary’s rights are recorded in the public record by a notary public.
Q: Who is involved in the trust?
A: Three parties – The Seller of the property is the TRUSTOR, the Bank is the TRUSTEE, and the Buyer, is known as the BENEFICIARY or FIDEICOMISO.
Q: How much does it cost to set up a bank trust?
A: The initial fee is $500 USD for writing the Agreement. There will be administrative fees also depending on which bank establishes the trust which can be up to an additional $1500 USD. Annual fees to maintain the trust run about $500 USD per year.
Q: What are Buyer’s rights?
A: The Trust is a legal substitute for what is commonly known as Fee Simple ownership, but in many cases, the Trustee is the legal holder of the property. Beneficiaries have the right to sell the property without any restrictions. They can also transfer their rights to a third party or pass it on to heirs through a formal will.
Q: Is the trust renewable?
A: Yes. Foreign Investment Law passed in 1993 allows Trusts to be renewed for an indefinite number of 50 year periods. It is essentially infinitely renewable.
The Beneficiary (Buyer/Owner) has a contractual right under the trust agreement with the Mexican bank to all benefits that may result from the use of sales of that property, even though he does not officially hold title to the property.
This form of Real Estate holding should not be coined as a lease. The Beneficiary can instruct to the Bank to sell the Fideicomiso Trust of the property at any time. The beneficiary can develop and use the property to his liking and benefit, within the provisions of the law.
Mandated by Mexican law, Banks acting as Trustee, have a Fiduciary obligation to respect the rights of the beneficiary.
Q: What professionals are required to complete a real estate transaction in Mexico?
A: Typically there are four players involved: 1) a Real Estate company, 2) The Buyer and/or the Buyer’s attorney, 3) a Bank, and 4) a Notary Public, which is a government appointed lawyer who processes, reviews and certifies all official documents to ensure the transfer of title is properly administered
Q: What documents are needed to purchase property in Mexico?
A: Much of the paperwork is similar to that of the U.S. The documents required by law to purchase property in Mexico include a non-resident certificate based on a title search from the Public Property Registry, a statement from the municipality regarding property assessments, water bills, and other pertinent taxes that might be due, and finally, an appraisal of the property for tax purposes.
Q: If a foreign national decides to sell the property, are there restrictions on who he can sell it to?
A: There are no restrictions. If the Buyer is also a foreigner, the seller simply assigns the beneficial rights to that person. The foreigner automatically receives his own renewal 50-year permit, as opposed to the balance remaining of the Seller’s 50-year period. If the new Buyer is a Mexican national, the seller can tell the bank to endorse the title in the Buyer’s name.
Q: Who pays the closing costs when Buying or Selling a property in Mexico?
A: It is common for the Buyer to pay the transfer of acquisition tax and all other closing costs, including the notary’s fees and expenses. The Seller typically pays capital gains tax and the Real Estate Broker’s commission.
Q: How much is the transfer tax?
A: The Real Estate transfer tax is usually between 1% and 4% of the tax appraisal
value, which is typically less than the sales value.
Q: How much are the closing costs?
A: The rest of the closing costs, excluding the transfer taxes, vary from 4% to 5% of the appraised tax value. These percentages are applied to whichever is greatest of 1) the sale price of the property, 2) the official tax appraisal value, or 3) the value determined by the property assessment authorities.
Q: Is Title Insurance available in Mexico?
A: Yes, it’s available and recommended. The insurer will research the title to the
property and ensure that it is free and clear. Should anybody ever dispute that title, the Buyer will have an advocate who will defend his claim in the local courts. Rates range from about $5 to $7 per $1,000 of coverage, depending on the value of the property and the individual firm.
Q: Is financing available for foreigners buying a property in Mexico?
A: Foreigners can get financing from a Mexico lender, and often developers have
specific companies that they can recommend. A few U.S. lenders are just starting to
offer mortgages in Mexico. Buyers should discuss financing options with their Realtor.
Are you ready to get started?
It’s best to work with a professional Realtor who’s been living and working in Mexico for some time. He or she will be most knowledgable on the Real Estate process, prepare documents, and put you in touch with the right Real Estate affiliates so that everyone works together to make the transaction go as smooth as possible and get you into your new tropical home or investment property.
Remax Cabo San Lucas
From US/CAN 1.800.817.1791
Blvd Marina Centro
Cabo San Lucas, BCS, Mexico